Malo periculosam libertatem quam quietum servitium

Menu

Socialism versus Democratic Capitalism

“What socialism, fascism and other ideologies of the left have in common is an assumption that some very wise people — like themselves — need to take decisions out of the hands of lesser people, like the rest of us, and impose those decisions by government fiat.” – Thomas Sowell (link).

“Mises explained analytically why the socialist system is irrational: no capital markets. No one knows what anything should cost. He said that the systems would either violate the commitment to total planning or else fail totally.” (link).

But what about recessions? “The supposed chief weakness of the market order, the recurrence of periods of mass unemployment, is always pointed out by socialists and other critics as an inseparable and un-pardonable defect of capitalism.” Friedrich A. Hayek, Denationalisation of Money 101 (3d ed. 1990) (1976). But what causes recessions? The Austrian business cycle explains (link):

By increasing the supply of money through loans in excess of savings, banks lower interest rates, sending a false signal that tricks investors into making expansive long-term investments unjustified by the supply of savings. After interest rates rise and prices in the economy adjust to the new supply of money, these investments experience widespread losses — a collection of errors that send the economy into a recession.

So what gives rise to cheap credit? National central banks:

[I]t is much easier, by giving in to the clamour for cheap money, to cause those misdirections of production that make a later reaction inevitable, than to assist the economy in extricating itself from the consequences of overdeveloping in particular directions. The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process.